Japan’s Financial Services Agency (FSA) on Wednesday gave the cryptocurrency industry self-regulatory status, permitting the , Japan Virtual Currency Exchange Association to police and sanction exchanges for any violations.
The government has been reviewing its approach toward an industry that has been hit twice by large-scale thefts.
The FSA approval gives the industry association rights to set rules to safeguard customer assets, prevent money laundering, and give operational guidelines. The association will also have to police compliance.
“It’s a very fast moving industry. It’s better for experts to make rules in a timely manner than bureaucrats do,” a senior FSA official said in a briefing, declining to be named.
Similar officially sanctioned bodies exist in industries such as securities brokerages.
“We will make further efforts to build an industry that is trusted by customers,” the cryptocurrency industry association said in a statement following the FSA approval.
Japan last year became the first country to regulate cryptocurrency exchanges, as it encourages technological innovation while ensuring consumer protection. Exchanges have to register with FSA.
Both the regulator and the industry were criticized after about $60 million was stolen from cryptocurrency firm Tech Bureau Corp in September. Before the incident, the company was slapped with two business improvement orders by FSA following the theft of $530 million in digital coins at Tokyo-based cryptocurrency exchange Coincheck Inc in January.
Some FSA officials said the crypto industry now needs heavier regulatory approach, while not wanting to stifle its growth.
Yuri Suzuki, senior partner at law firm Atsumi & Sakai, said the self-regulatory body’s rules are stricter than the current law and she expects them to help the industry to regain public trust.
At the same time, “the self-regulatory body’s workload is likely to be heavy and there is an issue of whether it can secure enough staff with expertise in crypto exchange business,” said Suzuki, who closely follows crypto industry regulation at home and overseas.
FSA on Wednesday also published a set of guidelines for those applying to run crypto exchange. The agency said there are about 160 entities expressed interest.
There are 16 approved crypto exchanges. FSA has not granted any new approval since December last year. “We are looking into more details than before. In that sense, the approval process has become more strict,” the FSA official said.